The Analyst

Morgan Stanley's Dara Mohsenian maintains an Overweight rating on Coca-Cola with a price target lifted from $55 to $57.

The Thesis

Coca-Cola remains Morgan Stanley's "top Overweight pick" within the U.S. Staples category as the beverage maker offers a growth profile that is underappreciated by the Street, Mohsenian wrote in a note. Specifically, management guided to flat 2019 EPS growth but the disappointing outlook is mostly a function of non-operating items, including foreign exchange headwinds, the absence of favorable hedges unwind seen in 2018, and higher net interest expenses and taxes.

On a two-year average basis, Coca-Cola managed to improve its organic topline growth by 80 basis points in the past few quarters which is above the 70 basis point range many of its peers are showing, the analyst wrote.

In fact, Coca-Cola's superior growth profile isn't reflected in the stock's valuation as shares are trading at a P/E discount to peers, according to the analyst. Coca-Cola's stock has also underperformed its mega-cap peers by around 1,200 basis points since the start of 2019 and by 910 basis points since Coca-Cola's fourth quarter report.

Coca-Cola should be able to show a sustainable mid-single-digit organic topline growth given a stronger price/mix outlook versus peers, management's focus on higher growth categories, including non-carbonated soft drink and an improved bottler distribution system.

Price Action

Shares of Coca-Cola traded higher by 0.7% at $51.30 at time of publication.